It happens – sometimes a VA loan foreclosure can result in a VA-owned property for sale. Foreclosed properties formerly owned by military members are often discounted for quick sale.
Properties that end up in the federal inventory due to VA loan foreclosure are known as VA REO, standing for Veterans Affairs Real Estate Owned. VA REO homes can vary from single-family and condos to multi-family units. Often the properties are sold below market value .
VA loans and other mortgage programs can be used to finance VA REO properties
Any qualified buyer can purchase a VA REO property. In other words, they are not just offered to veterans. And, the properties can be financed with whatever means the buyer chooses. VA loans, FHA mortgages and conventional financing are all popular. Another option is VA Vendee financing, which is a VA-backed loan program only available for buyers of VA REO properties.
Like VA loans, Vendee financing allows for zero-down purchases. The stipulation is that the buyer must plan to occupy the VA REO home as a primary residence. Non-owner occupancy is allowed with this type of financing but requires 5% or more down and property management experience. Also, like VA loans, Vendee financing is subject to the VA funding fee of 2.25% for purchases. Finally, similar to the VA home loan guarantee, Vendee loans are backed by a guaranty from the U.S. Department of Veterans Affairs so no private mortgage insurance is required.
VA home loans have many advantages
Of course, if the buyer is VA-eligible, then a VA home loan may be the best option for zero-down financing of a VA REO property. VA home loans offer these unique features:
- Zero money down within conforming loan limits
- No private mortgage insurance
- No pre-payment penalties
- VA Funding Fee from 0% to 3.3%
- VA loans are made by approved lenders
- Loans are assumable
- Up to all closing costs may be paid by seller plus 4% concessions
No minimum credit score is published in VA or Vendee guidelines; however, borrowers must prove to be a satisfactory credit risk as determined by the VA-approved lender.